Time Warner Cable-CBS dispute heats up as deadline nears

Time Warner Cable Inc. and CBS Corp. are playing a high-stakes game of chicken that could leave consumers without access to the most-watched broadcast network, starting Thursday.

The two companies are bickering over a new distribution agreement that would keep CBS-owned media properties, including KCBS-TV Los Angeles, on Time Warner Cable systems in Southern California and around the country.

At issue is the amount of money Time Warner Cable will pay to carry CBS-owned TV stations and its other properties, including the CBS Sports Network and Showtime.

Such feuds over carriage fees usually are resolved without viewers being caught in the middle, but the tension between CBS and Time Warner Cable has heated up over the last week. In advertising campaigns each is blaming the other for the impasse and ramping up the rhetoric as the Thursday morning expiration of the current contract approaches.

On Monday night, CBS ran an ad during the program "Under the Dome" warning Time Warner Cable subscribers that they may be watching their last episode of the hit series.

CBS has been increasingly vocal in recent years that its content is undervalued compared with what other channels get in distribution fees from pay-TV carriers.

In a memo to employees, CBS Chief Executive Leslie Moonves said the network's programs "are among the most popular in the industry, and yet there are many cable networks — with considerably less viewership — that receive more money for their programming from Time Warner Cable than we do."

Time Warner Cable has countered that CBS is being greedy.

"We are willing to pay for CBS, and we have offered them significant fees. But their current demands don't represent a good value for our customers," a Time Warner Cable spokesperson said.

According to people familiar with the matter who declined to speak publicly, Time Warner Cable is paying about 50 cents a month for each subscriber. CBS is seeking a long-term contract that would elevate that fee to about $1 in the first year with increases in subsequent years.

That is still less than what many cable networks — including ESPN, TNT and Disney Channel — receive, according to SNL Kagan, an industry consulting firm. Time Warner Cable's local sports channel also receives as much as $4 a month from some subscribers for its coverage of the Lakers.

"Cable is a very, very profitable business, and Time Warner Cable can certainly afford to pay CBS a fair rate for our programming without passing any added cost on to its customers," Moonves said in his memo.

He said that Time Warner Cable already charges its customers more than $20 a month for broadcast content, yet CBS "only realizes a tiny fraction of that ... and our costs for programming, news operations and sports contracts are growing all the time."

Consumers, of course, can receive the CBS signal over the air for free with an antenna. But Congress gave broadcasters the right more than two decades ago to negotiate distribution fees from pay-TV companies.

More recently, cable and satellite operators have complained that so-called retransmission consent fees are spiraling out of control, and they have asked the government to weigh in.

So far, though, the Federal Communications Commission has shown little interest in acting as the referee in the squabbles.

If the CBS signal goes dark, it could have an adverse effect on the network's ratings and potentially harm advertising revenue. The dispute is only with CBS-owned stations in Los Angeles, New York City and Dallas, not with affiliate-owned members of the network.

"I would be surprised if there is no effect on ratings," said Bill Carroll, a vice president at industry consulting firm Katz Television Group.

Time Warner Cable, meanwhile, may face angry customers who want their CBS shows and will blame the company for failing to cut a deal.

"Most consumers don't have a soft spot in their heart for cable companies," said Allen Adamson, a managing partner of marketing firm Landor Associates.

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